Ch. 3 - Demand Analysis - Market Analysis Applications--highest and best use appraising

Capture rate

A capture rate is defined as the estimated percentage of the total potential market for a specific type of property.

Identifying seller motivations

A demand analysis might include all of these activities, EXCEPT:

Marketability analysis

A marketability analysis or study consists of interviews, comprehensive data, maps, tables, etc. and demonstrates the marketability of a specific property or the possible future of an existing property.

Fundamental capture method

A method that compares the subject share of the market, adjusts the subject to the competition using quantifiable rating techniques, calculates the subject historical capture rate, and other factors.

Development process

A part of real estate development wherein vacant land is purchased after a design conception, financed, and sold.

Developer

A person or company who typically purchases a tract of vacant land and develops the real estate with improvements to yield a profit.

Normal distribution

A smooth symmetrical bell-shaped curve. The normal distribution can describe many populations.

Submarket

A submarket is a specialized sub-section of a market based on the geographic or economic conditions. For example, a submarket is a secondary market compared to the primary market.

Economic base analysis

A survey of the industries and businesses that generate employment and income in a community as well as the rate of population growth and levels of income, both of which are functions of employment. Economic base analysis is used to forecast the level and composition of future economic activity. Specifically, the relationship between basic employment (which brings income into a community) and nonbasic employment (which provides services to workers in the basic employment sector) is studied to predict population, income, or other variables that affect real estate values or land utilization.

Less liability

According to NCREIF, additional knowledge leads to a better appraisal product, and also to:

Is the same as office demand analysis

According to NCREIF, development of demand analysis for industrial properties:

Both quality and quantity

According to NCREIF, in completing a supply analysis, the total office space inventory is described by:

Sublet space

According to NCREIF, what is an example of "hidden" space?

Develop historical relationships as a basis for forecasting future demand

According to NCREIF, what is the purpose of demand analysis?

Base local demand projections solely on U.S. macroeconomic factors

According to NCREIF, which is NOT a step in demand analysis?

Consumer purchasing habits and debt

According to NCREIF, which of these is NOT required to be considered in developing demand analysis for multi-family residential properties?

Feasibility study

An analysis or study involving examination of geographic locations for a real estate development project as well as a cost-versus-value analysis.

Feasibility study

An analysis to determine the best possible location for a condominium development, which includes a cost versus value analysis, would be called a:

Negative net absorption

An appraiser is studying absorption rates for retail space in a market. She notes that over the last several years, more space is becoming vacant than is being leased. What is this phenomenon called?

a net absorption of 75,000 square feet

An appraiser's analysis indicates that 125,000 square feet of office space will be leased in a market in the next year; however during that same period, 50,000 square feet of currently occupied office space will become vacant. What would this analysis indicate?

A net absorption of 475,000 square feet

An appraiser's analysis indicates that 550,000 square feet of retail space will be leased in a market in the next year. However, during that same period 75,000 square feet of currently occupied retail space will become vacant. What would this analysis indicate?

Absorption

An appraiser's research indicates that 200 condominium units will be sold in the subject's market within the next year. This number refers to:

12.5% A capture rate is defined as the estimated percentage of the total potential market for a specific type of property that is sold or leased (i.e. "captured") by one entity or development. 25,000 divided by 200,000 equals 12.5%. The amount of square footage in their complex (80,000) does not enter the equation. (Chapter 3 - Capture Rates)

Berry Developers leased 25,000 square feet in their new 80,000 square foot retail complex last year. In the local market area, 200,000 square feet of retail space was leased. What is the capture rate for Berry Developers?

False

Census data should be analyzed according to standard methodology.

True Since real estate changes hands by sale or lease in an environment of expectations, even rumors can be important.

Consideration of rumors can be important in the valuation of real property.

Measure of dispersion

Describes the differences within a population in a statistical calculation.

Population growth

Growth of the population due to new employment in the area, new schools, shopping, or other characteristics consumers find desirable.

Determine whether sales will support the rent

How can census data be used in appraising restaurant properties?

A capture rate is defined as the estimated percentage of the total potential market for a specific type of property that is sold or leased (i.e. "captured") by one entity or development. 50 divided by 200 equals 25%.

If 200 new homes are sold in Newtown in a single year, and XYZ Homes sold 50 of them, what is XYZ's capture rate?

Decrease the price

If a property lacks market acceptance, how can the demand for the property be increased?

There is a 10-month supply of inventory currently on the market. The absorption rate is the rate at which properties for sale have been sold or rented within a specific market area. As such, it is helpful in determining supply and demand trends for a market area. 50 units divided by 5 sales per month equals 10 months' worth of inventory currently on the market. (Chapter 3 - Determining Absorption Rates)

If there are 50 condominium units for sale in a market area, and units are selling at a rate of five per month:

It will "steal" occupants from existing facilities

In calculating a capture rate, what must an appraiser consider if the subject property is superior to its competition?

The appraiser's highest and best use conclusion

In market analysis, what should the economic and demographic trends ideally support?

Finance, Insurance, and Real Estate

In reference to categorizing business and office space, the acronym FIRE stands for:

General merchandise, apparel, furniture, and other (GAFO)

In retailing, general merchandise such as apparel, furniture, etc.

Sample

In statistics, a sample is a subset of data from a population or universe, as in a representative sample of the population.

27.5 A capture rate is defined as the estimated percentage of the total potential market for a specific type of property that is sold or leased (i.e. "captured") by one entity or development. 22 divided by 80 equals 27.5%. The number of units available (40) does not enter the equation. (Chapter 3 - Capture Rates)

In the Oakdale market area, there were 80 new condominium units sold last year. Treetop Gardens development, with 40 units available, sold 22 units. What is the capture rate for Treetop Gardens?

6.7 y

In the local market, there have been 18 sales of building lots within the last year. Lakeview Estates just opened up with 120 lots for sale. Assuming this is the only subdivision selling lots in the area, how long will it take for the lots at Lakeview Estates to sell out?

4y The absorption for Class A office space is 60,000 feet per year. If The Cedars is expected to capture 20% of this market, this will mean that it will be able to lease 12,000 square feet per year (60,000 x 20%). Since the building has 48,000 square feet, it will take 4 years to reach 100% occupancy (48,000 divided by 12,000). (Chapter 3 - Determining Absorption Rates)

In the town of Woodlake, 60,000 square feet of Class A office space is leased per year. The Cedars, a Class A office building, just opened with 48,000 square feet of space to lease. It is projecting a 20% capture rate. How long will it take this building to reach 100% occupancy?

6y The absorption for Class A office space is 60,000 feet per year. If The Pines is expected to capture 10% of this market, this will mean that it will be able to lease 6,000 square feet per year (60,000 x 10%). Since the building has 36,000 square feet available, it will take 6 years to reach 100% occupancy (36,000 divided by 6,000). (Chapter 3 - Determining Absorption Rates)

In the town of Woodlake, 60,000 square feet of Class A office space is leased per year. The Pines, an older Class A office building, has 36,000 square feet of space for lease. It is projecting a 10% capture rate. How long will it take this building to reach 100% occupancy?

National Economy

In the valuation of a regional electrical power co-generation plant, the _________ would be the most significant factor in the valuation.

National, regional, and local information

Market analysis should relate and focus the ___________ to the value of the subject property.

Geographic

Market delineation defines the _____________ demand for a specific property.

Variance

Measures of central tendency include all of the following EXCEPT:

Absorption rate

Measures of demand that are often used in the appraisal process include:

Capture Rate

One measure of demand that is often used in the appraisal process is:

24m

Over the last year in Highland Falls, there have been 84 sales of single-family homes. Currently, there are 168 homes on the market. How long will it take the market to absorb this inventory?

Asset manager

Professional management of real estate to meet specified asset goals for the advantage of the investors. Investors may be insurance companies, lenders, pension funds, corporations, or private investors.

22.6% A capture rate is defined as the estimated percentage of the total potential market for a specific type of property that is sold or leased (i.e. "captured") by one entity or development. 28 divided by 124 equals 22.6%. The number of homes sold in Palmdale - a different market - does not enter the equation. (Chapter 3 - Capture Rates)

Salty Dog Developers sold 12 homes in Palmdale and 28 homes in Mapletown last year. The total number of new homes sold in Mapletown last year was 124. What is Salty Dog's capture rate in the Mapletown market?

Absorption rate

The _______________ is the rate at which properties for sale have been sold or rented within a specific market area.

Both Commercial and residential

The ability to determine household income, affordability of housing, and purchasing power is very important when considering the development or redevelopment of an area with:

Standard deviation

The difference of the observations from the mean in a statistical analysis. According to the principles of statistics, 66% of observations are within one standard deviation from the mean, while 95% are within two standard deviations.

Population trends

The number of people in the primary and secondary trade areas from the most recent census information as well as projections from state, regional, and local government agencies.

The feasibility of new construction

The relationship of supply and demand is a determining factor when assessing:

Net absorption

The square feet leased in a specific geographic area over a fixed time period after calculating the deduction of space vacated in the same area during the same time period.

North American Industry Classification System (NAICS)

The standard used by Federal statistical agencies to classify businesses for collecting, analyzing, and publishing statistical data related to the U.S. business economy.

FIRE (finance, insurance, real estate)

The study of capital and income that characterizes the financial services industries as part of the SIC/NAIS breakdown of types of industry: finance, Insurance, and real estate. The SIC was replaced by the North American (Canada, USA, Mexico) Industry Classification System (NAICS) in 1997.

Investment analysis

The study of economic and market trends, earnings calculations, and various other market indicators to determine investment strategies.

Absorption

The total demand for a type of real estate offered on the open market by all economic agents resident in an economy that may be leased or sold during a certain period of time.

True

There are several ways in which an appraiser can estimate demand.

Take local and economic impacts into consideration

To make accurate predictions based on census data, real estate professionals should:

Quantitative data

What kind of data is measured?

Fundamental capture method

What method compares the subject share of the market, adjusts the subject to the competition using quantifiable rating techniques, calculates the subject historical capture rate, and other factors?

American Fact Finder

What tool on the Census Bureau's website provides three different tables and thematic map functions?

Ordinal

When appraising office buildings, an appraiser often categorizes these buildings into classes (Class A, Class B, Class C). This is example of_________ measurement.

1

When choosing a trendline, the best fitting line will have an R-squared value that is closest to:

Self-employed persons

When using the U.S. Bureau of Labor Statistics as a source for employment and wage estimates, an appraiser should be aware that ____________ are not included in the estimates.

Competing and complementary properties

Within the market delineation process, the appraiser identifies:

The National Council of Real Estate Investment Fiduciaries (NCREIF)

is an association of institutional real estate professionals who are investment managers, plan sponsors, academicians, consultants, appraisers, CPAs, and other service providers who have a significant involvement in pension fund real estate investments. They address vital industry issues and promote research through articles, guidelines, etc.